The Hospital Debate – Measuring Effectiveness or Efficiency
Health care and management of the hospital system is vexed issue here in Australia as well as the very significant bill in the USA. Recently there was an excellent article in Harvard Business Review titled “Turning Doctors into Leaders” . In this article Dr Thomas Lee states that one of the significant problem of the US Health system is that results are not being measured and people being held accountable to this.
The more I have thought about this the more I agree. In the Australian context there has been a lot of discussion recently regarding the efficiency or lack of efficiency of the State based hospitals. The conversation has focused on dollars spent, waiting lists, number of admin staff to medical staff etc.
What there has not been any meaningful data on is the effectiveness or otherwise of the hospital system. There is no measures on the health outcomes not just the inputs. As Dr Lee states the rising cost of health is a symptom not the cause.
A very important step would be for governments (and other administrators) to start collecting and measuring health outcomes. With this data and the measures then people need to be held accountable. Why is this so hard for our governments to do? Why is their focus only on the inputs?
This measuring of health outcomes is possible. The Cleveland Clinic in the US not only measures health outcomes, it publishes the results on its website for all to see. It compiles and publishes Quality and Patient Experience Measures. The model is here. Accountability is very public. It can be done and we must do it.
My School Website – Measuring Output vs Input.
Here in Australia the Federal Government has recently started a new website called My School This website provides profile information about all of the schools in Australia (government and private).
The information detailed is various educational results from National testing that all students undertake in Years 3, 5, 7, & 9. Also the final year results are also included. The results for each school are compared to the national average and to statically similar schools.
The website has created some considerable controversy. The teachers unions are unhappy. A number of the school Principal’s are also unhappy. Their arguments is that these results are not reflective of the schools performance.
I am not an expert in assessing the educational results of a school, I am just a parent with a keen interest in measurement.
The metrics may not be perfect but they are better than what we had prior : – nothing. One measure that I would like to see is to track the results of a cohort of students through the schools. This would show the impact of the school. Given we are testing each student and then compiling them, it would relatively easy to track the students results throughout their time at the school.
The focus in the pass in education has been measuring the input. The politicians, teachers union, and schools themselves would talk about :-
- how many new teachers are employed
- class sizes
- dollars being spent nationally, state and school level.
The output though is a much more accurate reflection whether the money has been well spent. The My School website had least is moving towards measuring the output ie the educational results. So why the objections. Could it be that this start to reveal where the money is being wasted. Could it be that finally the focus on output will mean that people will be shown up.
This lesson is just as applicable to business. Be careful of measures that focus on the input. It is the output that is important. In business the output is measured by looking at what our customers think and do. Our measures must focus on what is important to the customer.
A fun way to promote a brand & illustrate a point.
“We believe that the easiest way to change peoples behaviour for the better is to make it fun to do.”
There are a number of things to be learnt from the video below.
Firstly Volkswagon have nailed the viral video. At the last time of looked this video had been viewed over 8.9 million times. This is one video of a series. Have a look at The Fun Theory for the others. Volkswagon instead of trying to market their vehicles have set and image for their brand in a fantastic way. It is a brilliant use of Web 2.0 to build their brand but they are not selling their cars etc.
The other lesson from this is the fact that if we make it fun and amusing for people to do then we can change people’s behaviour for the better. Economists have long held the belief that people react to incentives. Too often in business this is taken to mean more money. But if we make a workplace fun for the employees and experience for the customers then we will get loyal customers served by engaged employees.
Watch the video and look at the two lessons from this. How can you promote your brand in a unique way and how can you make it fun for your team and customers?
How Ritz Carlton Measures Success
There was a recent article in Forbes where the CEO of Ritz Carlton was interviewed. The Ritz Carlton is and unparalleled luxury brand. It has done this my rigorously adhering to its own standards. Its unique culture starts with the motto “We are ladies and gentlemen serving ladies and gentlemen”. It has 38000 employees throughout 73 properties in 24 countries. To learn more of the success of the Ritz Carlton I refer you to and excellent book by Dr Joseph Michelli – The New Gold Standard.
In this article in Forbes the CEO was asked “How do you measure success?. His answer was interesting and there are lessons for many businesses in it.
They measure success from the customer side and from the employee side.
With respect to the customer side they employee Gallup do to phone interview, asking two types of questions :- functional and emotional. On the function side they ask : How was the meal, Was the foot hot?, How was your room service?, Was your room clean. Through careful analysis they have determine and indicator question – that is a question that if answered 5 out of 5 then all the other questions will be answered positively. The functional indicator is “The room was clean”. On the emotional side the indicator is “I had a sense of well being”. They know that they have to pass the functional question before the guest will focus on the emotional question.
So what functional and emotional questions are you asking your clients / customers? What is the indicator question that will reveal the customers opinions?
In respect to the employees the most important metric they measure is “voluntary turnover”. This is an indicator of talent acquisition and training. They have very precise standards in who they hire and then spend a significant effort on training of the people.
Ritz Carlton realise that it is only with enthusiatic team that you will have loyal committed clients. Therefore they are measuring success from both aspect. Also they are measuring the emotional responses as well.
How do you measure success in your business?
KPI’s are not just financial measures.
To be effective KPI’s can not just be composed of financial metrics. Metrics derived from the financial statements have a place but they need to be complemented with other measures that are derived from a true understanding of what is important to the customer.
The financial statements are records of history. Thus financial metrics also reflect what has happened. They are not in any way predictive of what is to come. Financial measures have important uses including cashflow management, efficiency, productive use of resources. But financial measure must not dominate the KPI’s as the focus will be distracted from delivering value to the customers.
We need to focus on what is success in the eye of the customer not just past profitability.
The first step in this process is to have a complete understanding of the customer and what they value. A business must invest the time and effort to be armed with the facts and data on the customer. From this the business needs to ask the customer and to observe their behaviour to get the understanding of what is important to the customer. Once this information is to hand then indicators that measure this value delivery can be designed and implemented.
The key measure of this post is not just have financial metrics as KPI’s.
5 Reasons why businesses end up with poor KPI’s
Unfortunately performance measures or KPI’s can get a bad impression because the prevalence of some terrible KPI’s in many businesses. The phrase “what you can measure you can manage” which came originally out of a McKinsey strategy has been belittled by many. I am not saying that you can measure everything (that is for another post). The failure of KPI’s and perception that has been generated I believe has come about from poor implementation of performance measurement.
The reasons that business have poor KPI’s include:-
- They do not exactly know what is success in the eye of the customer. We must start with the customer to know what we should be focusing on measuring and tracking.
- Lack of a complete understanding of the operational drivers of the business success.
- Having KPI’s that are at odds with each other. For instance if there is a KPI on customer value delivered and then a KPI on employee productivity then there can be a tension as to which one is the most important.
- Too many KPI’s. Some businesses I have encountered have had more than 50 KPI’s at senior management level. This just means that none of them will be focused on.
- The design of the KPI has been delegated a low level person in the finance department. The KPI’s are too important not to designed by CFO or senior management.
I am sure that there are many other reasons why inappropriate performance measures end up being designed and implemented however these are five I have seen to0 often.
Your thoughts please.
5 Reasons why businesses don’t have performance measures
There are many reasons given by business owners for why they don’t have performance measures. In this post I have outlined five reasons
1. Already know – no need to measure it. Often when business owners don’t have KPI’s it because they believe they know what is going on This might be the case when the business is very small however it definitely not the case when the business expands. It is the little things that the KPI’s will reveal. Little things that added together will make a huge difference.
2. Got real work to do - There can be an attitude that having a few targeted metrics distracts people away from doing the real work. But, it is the business who is willing to spend the time to work out how to do things betters is the business who will succeed. Just because it seems like unproductive time it will lead to consistent improvements which will mean a better business, better profit and more enjoyable for all.
3 Bottom Line is good enough. There could actually be two reasons within this statement. Some business owners believe that it is possible to manage a business from the profit and loss statement. These statements are just history and by the time the information is in the P&L Statement it is too late. Also the other part of the statement is that if the profit of a business is growing it can make management complacent. This can then lead to the focus being put on the wrong things. Some key metrics will keep the focus of the business on what is important.
4. Don’t like or understand numbers. Unfortunately I have heard this one too often. But it is simply impossible to manage the business without knowing or understanding the numbers. But it does not need to be a list of complex numbers. Numbers can be graphically presented to make them easy to understand for everybody.
5. Don’t have the data. Whilst this may be the case it should not be used as an excuse not to redesign the systems so that data is available. Take the time and ensure the data can be collected so the metrics will be useful.
It is necessary to understand the key numbers of a business so correct management decisions can be made. 01
What we measure is what we get
Oftentimes in business, the owners or management have an expectation as to what the team should be delivering. Also, the owners and the managers usually believe that the team should be aware of issues that pertain directly to the customer. Finally the management then get frustrated when either the production is not met or the service quality standard is not achieved.
The question that has to be asked is this – what are the owners/managers measuring? Or, if they don’t have a specific scorecard to tell everybody how the business is going, what are they reacting to?
So, for instance, in their staff meetings or individual meetings with team members, what are they talking to their staff about? If they are concerned about the quality but then all they react to is whether there has been adequate production, the staff will soon become aware that “what matters around here” is production, not quality. Behind the scenes, the management might be getting frustrated with the quality, but all they are reacting to in their team meetings is another issue.
So whether it is by way of a relevant, accurate, timely scorecard, or whether it is just by way of management actions, what we measure is what we get.
This point has been illustrated to me recently in a company that I have been working with, where we are in the process of implementing production targets. There was an expectation that the team could only produce 1000 units per day, and there had been some days when production was as low as 800 and not many days when the production was in excess of 1000. So implementing a production target of 1000 per day to start with, with a goal that within 4 weeks we would be able to increase that to 1100 per day, had a remarkable impact. Within 1 week, the team was exceeding 1100 and nearing 1200. Five weeks later, they were at 1400 per day.
Nothing else has changed, other than there is a scorecard, and there are positive consequences happening through reward and recognition from management of achievement of the team. The team has beeen able to together, without input of management, learn how to improve processes that have enabled increased production. Prior to this scorecard, management thought they were doing well when 1000 units per day were produced.
Measures (KPI’s) drive behaviours. Now we can’t measure everything but we need to carefully measure what is important because they can influence the actions of the team.
What we measure is what we get. What are you measuring? Do you have a scorecard? If you don’t have a scorecard, what are you reacting to? There is no doubt that measures can change behaviours. It doesn’t mean that we should measure everything that moves in a business. We only must be measuring what matters, either to the end customer or to the efficiency within the business. There is not doubt that what management views as important by their actions is what they will get.
So again I ask – what are you measuring in your business?
Are you measuring what matters online?
Measurements matter, especially online, and the internet, through tools such as Google Analytics and a myriad of other devices and applications, we can measure all aspects of a business’s online performance. Through these tools, we can know how many people are looking at exactly what pages of the website, at where did they come from, how many pages of the website did they look at. We can measure what click-through rate there is from our campaigns. We can measure the traffic that was generated and the conversion of that traffic. We have the number of Twitter followers, the number of fans on Facebook, and all sorts of things, but what really matters? Once again, no matter whether we’re talking online numbers or the numbers offline in respect of our business, we need to be focusing on those numbers that really matter in our business. We need to know what is important and then, armed with that information, we can adjust our strategy accordingly.
Particularly, let’s focus on the number of Twitter followers and the number of fans on Facebook. There are many people out there who are unfortunately just trying to garner the largest Twitter follower base or Facebook base or LinkedIn connections, but really what matters is the connections we are having with those people – how engaged are we with those people? We could have 7000 followers, but are only communicating and engaging with a handful, so the number becomes somewhat meaningless. We could have a number of fans of our Facebook page, but they aren’t interacting with us and we aren’t interacting with them, so whilst the number is of some use, we need to be concerned with how many of these followers or friends or connections we are actually engaging with. We need to have loyal friends and fans who are willing to provide word-of-mouth recommendations and engage with others on our behalf – they are the followers we need, and we need to know how many of those we have in our various online communities.
It would be more appropriate to have 50 followers on Twitter who really are enthusiastic about our product or service, than 5000 people who we don’t engage with or are not interested in us. Seth Godin speaks of tribes, garnering people together who are willing to join a community and be actively involved. We need to remember that a person is only part of a tribe by choice and through active engagement. So accordingly, for our online activities, we need to be engaging with people.
I have seen people talk about the traffic they get to their website, but how much of that traffic is actually being converted into some engaging activity with the business? We need to always remember, whether it is in respect of our offline business or our online activities, to measure what matters, focus on engaging with our community, engaging with our customer base, garnering the connections with the people who are willing to promote and participate in our tribe.
Your thoughts on this would be appreciated.
AIG Bonuses – Right & Wrong
Last night I was having a conversation with some colleagues about the economic situation and the issue of the AIG bonus payments came up. Of the 4 of us present, the other three all felt that the bonus payments should not have happened. Yes you guessed it, I don’t agree.
So let me explain. From what I understand these payments are made to approximately 200 people under contractual arrangements entered into when these people joined AIG. Also these bonus payments are only payable based upon certain criteria being met. Therefore with this as the basis I firmly believe that all economies are founded on the basis that contracts are enforceable and somebody can not get out the contract at a later date if they want to change the goal posts. Thus the payments must be met to honor the obligations. If you say that since everything has changed and therefore the bonus payments should not be payable then where do you stop. Who has the discretion to honor which legal contracts? Remember these people getting the bonuses are not as I understand it the board or the CEO. The people getting it are the revenue generators for AIG.
I believe that the payment is to be made, so why has it become a big issue. It is obvious if you are a politician it is easy to be antibusiness and whip this into a fever pitch issue. I am concerned about the antibusiness sentiment that is coming out of the government in the US.
Now one of my colleagues stated that whilst the legal contracts may be correct but morally these people should not get the payments. I believe that morally the leadership of AIG has to honor its commitments to the team – so it cuts both ways.
Let’s look at these items in the cold hard light of day and remove the political vested interests from the argument.
There is a salient issue here in that businesses need to measure what matters i.e. what matters to the customers and make these measures the ones which rewards and bonuses are paid. If this was case then the bonuses would possibly not be payable.
I would love to hear your comments on this.
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